ANALYSIS: Oil in Free Fall — When Trump and Iran Send Shocks Through the Global Economy

The Long and Winding History of the Iranian Nuclear Issue

The Iranian nuclear issue is one of the most complex and far-reaching diplomatic sagas of the past two decades. Ever since Iran began enriching uranium to levels that alarmed the international community in the early 2000s, the issue of nuclear proliferation in the Middle East has continued to haunt foreign ministries and trading floors. The 2015 agreement—the JCPOA (Joint Comprehensive Plan of Action)—had seemed to offer a way out of the crisis, exchanging restrictions on Iran’s nuclear program for the lifting of economic sanctions. But Trump’s unilateral withdrawal in 2018, during his first term, derailed the entire process.

Today, in his second term, the dynamic is different—and paradoxically, it is Trump himself who seems to be considering some form of reengagement with Tehran. Signals emerging from discreet negotiations in Oman and other capitals suggest that serious discussions are underway regarding a framework that would allow Iran to gradually return to international oil markets. The prospect is straightforward: if an agreement materializes, Iran could quickly return to the market between 500,000 and 1.5 million barrels per day of oil currently subject to sanctions. This volume would fundamentally alter the global supply-and-demand equation.

The Practical Implications for Oil Markets

Oil markets have a golden rule: they don’t wait. As soon as the probability of a major event reaches a certain threshold, prices begin to factor in that event even before it occurs. This is known as “pricing forward”—the markets’ ability to discount the future into current prices. And that is exactly what is happening with the Iran issue. Traders aren’t waiting for an agreement to be signed to adjust their positions. They’re betting on the probability of an agreement, and that probability—even if it remains uncertain—is enough to put downward pressure on prices.

OPEC+ member countries are watching this development with anxiety that shines through their carefully calibrated public statements. Saudi Arabia, in particular, finds itself in a delicate position. Riyadh needs an oil price of around $80 to $90 per barrel to balance its national budget—a budget that funds the monumental economic diversification projects of Crown Prince Mohammed bin Salman’s Vision 2030. A massive return of Iranian oil to the markets would directly threaten this budget balance, forcing Riyadh to either accept deficits or cut its own production to prop up prices—which amounts to ceding market share to its regional rival.

There is something ironic, almost tragic, about this situation: Trump—the very man who torpedoed the Iran nuclear deal in 2018 and imposed the harshest sanctions in history against Tehran—could now be the man who brings Iran back into the global oil game. History has a very peculiar sense of humor.

The Cartel’s Fragile Cohesion in the Face of External Pressures

The Organization of the Petroleum Exporting Countries and its allies—the group known as OPEC+—is simultaneously one of the world’s most powerful and most fragile economic coalitions. It is powerful because it controls a sufficiently significant share of global production to influence prices. Fragile, because it brings together nations with often conflicting interests, vastly different financial capacities, and sometimes incompatible geopolitical agendas. OPEC+’s cohesion relies on collective discipline—each member must adhere to its production quotas—which is constantly put to the test by the temptation to cheat.

Faced with the dual pressure of Trump’s tariffs and Iran’s potential return, OPEC+ finds itself in a particularly delicate position. The organization had already decided, during its most recent meetings, to gradually increase its production—a bet on the strength of global demand that recent developments have made riskier. Some members are now pushing for a return to stricter production cuts. Others—notably certain Persian Gulf countries that need short-term revenue to finance their budgets—are resisting this idea. And Iraq, Russia, and the United Arab Emirates all have histories of imperfect compliance, which complicate internal negotiations.

Russia: A Player Forced into a Multi-Layered Game

Russia’s situation warrants special attention. Mired in its war in Ukraine and forced to sell its oil at significant discounts to Asia to circumvent Western sanctions, Putin’s Russia needs higher prices more than ever to finance its war effort. It is estimated that the Russian budget requires an oil price of at least $70 to $80 per barrel to break even—and some estimates, which factor in rising military costs, push this threshold even higher. A prolonged drop in prices would therefore be doubly destabilizing for Moscow: economically and strategically.

In this context, Russia is playing a complex game within OPEC+. It has every interest in appearing to exercise production discipline, even if it does not always adhere to it in practice—the capacity for independent verification of Russian oil flows remains limited, despite the efforts of specialized agencies. And if an agreement with Iran materializes, Moscow will have to decide how to respond to the arrival of yet another competitor in Asian markets, which now constitute its main commercial outlet. Russian and Iranian interests, often presented as convergent in geopolitical rhetoric, are in reality deeply competitive once you get down to the level of barrels sold.

Here’s what no one is saying outright: OPEC+ is an alliance of convenience between states that distrust one another, regularly cheat on their commitments, and have fundamentally different interests. That this arrangement is still holding together is, in itself, a diplomatic miracle. But miracles have a limited shelf life.

National Budgets Under Pressure: From Riyadh to Abuja

Behind the futures market trends and statements by oil ministers lie human and social realities of a harshness often overlooked by financial analyses. Oil-dependent economies—those countries whose government revenues rely on oil revenues for 50, 60, 70 percent, or more—are the first victims of downturns. And this vulnerability is not abstract: it translates into cuts to public services, delayed payments to civil servants, abandoned infrastructure projects, and social tensions that can quickly spiral out of political control.

In Nigeria, for example, oil revenues finance a significant portion of the federal budget of a country with more than 200 million inhabitants that is already grappling with runaway inflation, a devalued currency, and explosive regional inequalities. In Abuja, every dollar drop in oil prices is a budgetary nightmare. In Algeria, where hydrocarbons account for the bulk of export revenues, a prolonged downturn would threaten the government’s ability to fund social subsidies—the main pillar of political stability in a country that still remembers the dark decade of the 1990s. In Venezuela, the situation is even more critical, in a country whose economy has already been ravaged by years of mismanagement and sanctions.

Canada and the United States: Producers Themselves Under Threat

The drop in oil prices isn’t just hitting countries in the Global South. It’s also hitting—and hard—the extractive industries in developed countries. In Alberta, the Canadian province whose economic identity is inextricably linked to oil sands, the tension is palpable. Oil sands are among the most expensive resources to extract in the world—their break-even point generally ranges from $45 to $65 per barrel, depending on the project. A sustained drop in prices would jeopardize the economic viability of many projects currently under development and force painful revisions to investment plans.

In the United States itself, the shale oil sector—the energy revolution that transformed America into the world’s leading oil producer—is particularly sensitive to price fluctuations. Small and medium-sized independent producers in the Permian Basin of Texas or North Dakota often operate on thin margins and with significant debt. For them, a prolonged period of low prices could mean bankruptcy. And such bankruptcies would have tangible repercussions on tens of thousands of jobs in rural communities where the oil industry is often the primary employer. This is one of the ironies of Trump’s tariff policy: his trade decisions are undermining a sector he claims to defend.

Workers on the oil fields of Alberta or Texas don’t read IEA reports. They get calls from their supervisors. They see equipment shut down. They talk to coworkers who’ve just lost their jobs. That’s what a drop in oil prices looks like in real life. Not a chart on Bloomberg.

China as a Decisive Factor in Global Energy Demand

No analysis of today’s oil markets can afford to overlook China. Over the past two decades, the country has become the main driver of growth in global energy demand. Analysts at the International Energy Agency (IEA) estimate that China alone has accounted for a considerable share of global growth in oil demand over the past twenty years. When the Chinese economy accelerates, oil prices tend to rise. When it slows down, they fall. It’s as simple—and as formidable—as that.

However, the Chinese economy is undergoing a period of structural slowdown that economists are debating intensely: Is this a cyclical pause or a transition toward sustainably lower growth? The real estate sector, long the engine of Chinese growth, is in deep crisis. Domestic consumption is not rebounding at the pace hoped for by the authorities. And now, U.S. tariffs are threatening Chinese exports—another blow to an economy still finding its footing in the post-pandemic era. The combination of these factors is creating deep uncertainty about the future trajectory of Chinese oil demand—and, by extension, global prices.

The Energy Transition: A Structural Factor Not to Be Underestimated

Beyond economic cycles, there is an underlying trend that players in the oil sector often downplay in their public communications: the global energy transition is gradually but inexorably eroding the growth of oil demand. Paradoxically, China is one of the global leaders in this transition: it is installing more solar panels and wind turbines than the rest of the world combined, and its sales of electric vehicles have reached levels that would have seemed utopian just five years ago. Ultimately—and that time is approaching faster than pessimists feared—this structural transition will fundamentally change the landscape for oil exporters.

In the context of the current crisis, the energy transition plays an ambiguous role. On the one hand, it contributes to long-term downward pressure on oil prices, making investments in new oil fields increasingly risky. On the other hand, it is being implemented slowly enough that current producers will continue to enjoy substantial demand in the medium term. Above all, it creates deep strategic uncertainty regarding investment horizons—which is holding back capital spending in the sector and could, paradoxically, set the stage for a future shortage if the transition turns out to be slower than expected.

There is much talk of the energy transition as a revolution in the making. But revolutions proceed at an uneven pace. Sometimes they move quickly. Sometimes they stall. And in between, millions of people live within the structures of the old world, dependent on a system whose end has been foretold but has not yet come to pass. It is in this uncomfortable and uncertain space that we all find ourselves.

Oil Majors: Between Adaptation and Resistance

Over decades of boom-and-bust cycles, the major international oil companies—ExxonMobil, Shell, BP, TotalEnergies, and Chevron—have developed a form of institutional resilience. Their finance teams have developed sophisticated hedging tools, their investment plans factor in low-price scenarios, and their balance sheets have been strengthened following the painful adjustments of 2015–2016 and 2020. These companies will not panic in the face of a correction lasting a few weeks. But a prolonged period of low prices will force them to make difficult choices regarding their project portfolios.

The trend among these majors in recent years has been toward capital discipline—investing less, distributing more to shareholders, and avoiding costly megaprojects with long payback periods. This strategy served these companies well when prices were high. But it has also reduced their ability to absorb shocks through the flexibility of their investment plans. When there is little left to cut, the cuts target staffing, maintenance, and exploration projects. These are decisions that have long-term consequences for future production capacity—and thus, potentially, for future prices.

National Oil Companies: Between Budgetary Constraints and Political Imperatives

The situation facing national oil companies—Saudi Aramco, ADNOC in the United Arab Emirates, NIOC in Iran, Gazprom Neft and Rosneft in Russia, NNPC in Nigeria, and Pemex in Mexico—is fundamentally different from that of private majors. These companies do not operate solely according to market forces. They are also subject to the political imperatives of their shareholder governments, which use these companies as instruments of foreign policy and state financing as much as they do as commercial enterprises in their own right.

Saudi Aramco, for example, is the world’s most profitable company—a position it owes to its extraction costs, which are among the lowest on the planet (less than $3 per barrel). But it is also the Saudi government’s main source of revenue, and the government requires it to pay colossal dividends even when prices are low. This dual constraint—being profitable AND financing a state that is generous toward its population—creates tensions that will become all the more apparent in an environment of depressed prices. For Aramco, a prolonged decline in prices does not threaten its survival. But it does threaten the Saudi social model that petrodollars have been financing for decades.

Saudi Aramco is perhaps the most fascinating company in the world—and the least understood. It extracts oil at $3 per barrel and sells it for 70 or 80. The margin is colossal. And yet, Riyadh is under constant budgetary pressure. Because when you’re building NEOM, financing wars in Yemen, and handing out subsidies to an entire population, even the most impressive margins are never enough.

Falling Gas Prices: Some Relief

From the perspective of the average Western consumer, a drop in oil prices should normally be good news. Lower prices at the pump, lower heating bills, reduced transportation costs—all of these provide some relief for purchasing power that has been eroded by several years of inflation. And to a certain extent, that is indeed what is happening. Markets for refined products—gasoline, diesel, and jet fuel—generally follow fluctuations in crude oil prices, albeit with a certain time lag.

But the relief is relative and potentially short-lived, for several reasons. First, the pass-through of crude price declines to consumer prices is often incomplete and asymmetrical—oil companies and retailers are quick to pass on price increases but more reluctant to pass on decreases. Second, if the drop in oil prices is a symptom of a global economic slowdown—as may be the case here, due to the impact of trade tariffs—then the relief on energy costs will be more than offset by the effects of that slowdown on employment, wages, and growth. Cheaper gas isn’t much use if you’ve lost your job.

The Dilemmas Facing Western Governments

Governments in advanced economies find themselves in an ambiguous position regarding this dynamic. On the one hand, low oil prices make it easier for them to combat inflation—a concern that has dominated their agendas since 2021. Cheaper energy eases the pressure on central banks, potentially paving the way for interest rate cuts that would benefit indebted economies. On the other hand, if the drop in prices reflects a weakening of global demand caused by trade wars, this is not good news for economies whose health depends on the strength of international trade.

There is also the climate dimension. Governments committed to the energy transition know that low fossil fuel prices reduce the relative attractiveness of renewable energy and clean technologies. A price of $60 per barrel complicates the economic case for electrifying transportation, retrofitting buildings for energy efficiency, and developing green hydrogen. This is why several European governments, in particular, view this price correction with very mixed feelings—aware that the short-term and long-term logic of their energy policies point in opposite directions.

There is a cruel irony in all of this. The governments that have poured billions into the energy transition need oil to remain expensive for their investments to make economic sense. And now, the decisions of one man in Washington, combined with rumors of negotiations in hotels in Oman, threaten to derail their calculations. Climate policy is never immune to geopolitics.

The Bearish Scenario: A Prolonged Trade War and the Iran Deal

In the most bearish scenario for oil prices, the two current downward pressures reinforce each other and persist. U.S. tariffs remain in place or are intensified, leading to a significant contraction in global trade and a global economic slowdown that depresses energy demand. At the same time, a nuclear deal with Iran is finalized in the coming months, allowing for a gradual but substantial return of Iranian oil to the markets—potentially an additional 800,000 to 1 million barrels per day within six to twelve months. OPEC+, unable to agree on additional cuts due to conflicting interests, maintains or increases its production.

In this scenario, the most pessimistic analysts suggest prices could fall toward the $50–60 per barrel range—a level that would put many high-cost producers in difficulty, force painful budget revisions in oil-exporting countries, and create social and political tensions in the nations most dependent on oil revenues. This scenario is far from inevitable, but the forces that could bring it about are real and already in motion. This is not a tail-risk scenario—it is a central risk that markets are beginning to seriously price in.

The Bullish Scenario: De-escalation and Resilient Demand

Conversely, the bullish scenario is based on several optimistic but not unrealistic assumptions. The United States and its trading partners reach compromises that reduce the intensity of the trade war, preserving sufficient global growth to support energy demand. Negotiations with Iran stall or result in a partial agreement that allows only a limited return of Iranian oil to the markets. Faced with falling prices, OPEC+ regains sufficient cohesion to announce and adhere to production cuts. And Chinese demand, stimulated by government stimulus measures, rebounds more vigorously than expected.

In this case, prices could stabilize in the $75–85 per barrel range—a comfortable level for most producers and not excessively burdensome for consumers. But this scenario requires a convergence of several positive factors within a geopolitical and economic context that currently generates far more negative than positive uncertainties. Markets currently assign a lower probability to this scenario than to intermediate or bearish scenarios—and that is precisely why prices have fallen.

Scenarios are the analyst’s craft. But reality doesn’t follow scenarios. It does what it wants, when it decides to, for reasons no one could have foreseen. What I can tell you with certainty is that we are entering a period of high uncertainty regarding energy prices. And in times like these, preparing for the worst isn’t pessimism—it’s prudence.

Interdependence as Systemic Vulnerability

Beyond the numbers and scenarios, the current crisis in the oil markets reveals something profound about the structure of the contemporary international system. We live in a world of extraordinary economic interdependence—an interdependence that has produced decades of shared prosperity but is also proving to be a formidable source of systemic vulnerability. When a single actor—even one as powerful as the United States—unilaterally decides to change the rules of the trade game, the effects spread instantly through complex causal chains that ultimately impact energy prices, government budgets, and workers’ jobs on the other side of the world.

This is one of the most important lessons of the post-globalization era we are entering: interdependence is not symmetrical. The countries that depend most on others—for their export markets, for their oil revenues, for their access to technology—are also the most vulnerable to unilateral shocks generated by the most powerful. Nigeria did not choose its dependence on oil revenues. Alberta did not choose to be so deeply integrated into the U.S. economy. These situations are the result of decades of economic development, investment policies, and the structure of global markets. Correcting them takes generations.

Energy Geopolitics at the Heart of Global Realignments

The current crisis is part of a broader shift in the global geopolitical order, in which energy is a central axis. The United States’ decision to become energy self-sufficient—and even a net exporter—has profoundly altered its relationship to crises in the Middle East. For decades, the security of oil supplies was at the heart of U.S. foreign policy in the Middle East. Today, the calculus is different. The United States can afford to take a more ambivalent stance toward regional stability—which partly explains Trump’s unusual diplomatic flexibility on the Iran issue.

Meanwhile, China—a massive oil importer—views its energy vulnerability as an existential issue of national security. This is one of the driving forces behind its strategic engagement in Africa, the Middle East, and Central Asia—regions rich in energy resources. It is also one of the reasons why Beijing is so urgently developing its renewable energy capabilities: energy independence is seen as a prerequisite for strategic autonomy. In this grand game, Trump’s decisions on tariffs and Iran are not merely economic issues. They are moves in a large-scale geopolitical game of which we are seeing only the opening rounds.

We tend to analyze oil crises as economic events with geopolitical dimensions. I think it’s the other way around: they are geopolitical events with economic dimensions. Oil has never been just a commodity. It has always been liquid power. And understanding who controls that power means understanding how the world works.

Certainties Fading, Questions Remain

We are at a crossroads. The dual pressure on oil markets from Trump’s tariffs and the nuclear negotiations with Iran is not a temporary, cyclical phenomenon that will resolve itself in a few weeks once tempers cool and markets regain their balance. It is a symptom of a deeper structural transformation of the global economic and geopolitical order—a transformation in which the certainties that have guided investment decisions, national strategies, and trade policies for the past thirty years are crumbling. Multilateralism as the organizing principle of global trade is being challenged. The rules of the game for OPEC+ are under strain. The trajectory of the energy transition remains uncertain. And at the top of the system stands one player—the United States under Trump—that combines considerable power with systemic unpredictability that other players struggle to factor into their calculations.

In this context, the best-positioned players will be those that have developed the greatest resilience—economic diversification for oil-producing nations, portfolio flexibility for oil companies, and accelerated adaptation for importing economies. But resilience takes time to build. And time, precisely, is what the most vulnerable players in this system lack. For workers in Alberta who are seeing their workforces downsized, for African governments whose budgets are cracking, and for Saudi families whose subsidies could be cut, structural adjustment is an immediate reality, not an abstract strategic goal. It is for them, as much as for strategists and investors, that the issue of oil prices is of vital importance.

What We Must Take Away from This Moment

The fundamental lesson of this crisis—if there is one—is perhaps that of asymmetric interdependence. In a world where the decisions of a single actor can destabilize the revenues of dozens of countries and the living conditions of hundreds of millions of people, the issue of global energy governance is not merely a topic for academic seminars. It is a matter of global justice and stability. Current institutions—OPEC+, the International Energy Agency, and the G7 and G20 forums—have demonstrated their ability to manage isolated crises. But in the face of a structural realignment of the nature and scale of the crisis we are currently experiencing, their adequacy is being seriously called into question.

The coming weeks and months will be decisive. If negotiations with Iran result in a substantive agreement, if trade tariffs intensify further, and if OPEC+’s cohesion continues to erode, we could see a deeper and more sustained price correction than what the markets have already priced in. And such a correction would have geopolitical, social, and economic consequences that we still barely understand. In these uncertain times, the columnist’s task is not to predict the future—no one can do that. It is to clarify the issues at stake, to identify the forces at play, and to remind us that behind every curve on a chart, there are human lives that will be affected. That is what analysis is for. And that is why it matters.

Ultimately, the price of oil is nothing more than a number. But that number embodies the sum of thousands of political decisions, economic strategies, geopolitical tensions, and human vulnerabilities. To understand it—truly understand it—is to understand a little better how the world works. And perhaps, just perhaps, how to make it a little fairer.

I’ll conclude this analysis with a certainty and a question. The certainty: we’re going through a period of profound transformation in global energy markets, and the most vulnerable players will pay the heaviest price, as always. The question: do those who hold the levers of power—in Washington, Riyadh, Tehran, and Moscow—truly grasp the human consequences of their decisions? I wish I could tell you that they do. But honestly, I don’t believe they do.

A Moment of Truth for Markets and Governments

The drop in oil prices triggered by the combination of Trump’s tariffs and the nuclear negotiations with Iran is more than just a market correction. It is a telltale sign—a sign of the fragility of the global economic architecture, of tensions within producer alliances, and of the vulnerabilities of nations whose fiscal survival depends on oil revenues. It is also a barometer of the ability of a single actor—the United States under an unpredictable presidency—to destabilize balances that others take years to build.

Energy geopolitics has always been at the heart of global power dynamics. But the current landscape—with the dual pressure of unilateral trade decisions and the possible reintegration of a major sanctioned player—creates an unprecedented level of complexity that conventional analytical tools struggle to fully grasp. What is certain is that the current balances are unstable, that the forces at play are powerful, and that the consequences for the economies, societies, and individuals that depend on the global energy sector will be significant—whether they manifest in the coming months or unfold over several years of gradual realignment.

Monitor, Analyze, Understand

In the coming weeks, several developments warrant particular attention. The progress of U.S.-Iran negotiations—their pace, their level of ambition, and any leaks that will fuel market speculation. OPEC+’s decisions at its upcoming meetings, and above all, the ability of its members to honor their commitments. The evolution of global macroeconomic indicators—trade data, PMIs, confidence indicators—which provide a true measure of the impact of tariffs on global growth. And, though harder to quantify but just as important, the evolution of Washington’s stance on its own tariff decisions—an administration that has already shown it can pivot abruptly when the political consequences of its decisions become too burdensome to bear.

The global energy order is at a crossroads. The paths ahead lead to very different destinations—some toward stabilization at manageable levels, others toward destabilization with more serious consequences. What is decided in the coming months—in the negotiating rooms of Oman and Vienna, at the OPEC+ meetings in Vienna, and in the corridors of the White House and the G20 finance ministries—will determine which of these paths will be taken. And we—analysts, columnists, and citizens of an interconnected world—have a duty to follow this path with all the clarity and attention it deserves.

I conclude this analysis with the conviction that energy remains the lifeblood of global affairs—not metaphorically, but literally. Whoever controls oil controls budgets, armies, and national destinies. And in a world where this control is increasingly contested, increasingly fragmented, and increasingly uncertain, analytical vigilance is not an intellectual luxury. It is a democratic necessity.

Signed, Jacques Pj Provost